Are you exempted from filing returns?

CBDT’s circular does not cover those having refund claims, loss from property, income from FDs and no PAN card.

Last week, I learnt about the widespread confusion in the minds of taxpayers about the recent circular from the Central Board of Direct Taxes (CBDT).

In the budget, it was told that CBDT shall soon notify a category of salaried taxpayers who will not be required to file returns as their tax liability gets discharged by deducting tax at source (or TDS). The details that came out in June-end, said a salaried employee earning an income of up to Rs 5 lakh was exempted from filing taxes. This was subject to certain conditions.

Even staffers at some income tax offices were not accepting tax returns for income less than Rs 5 lakh. To put all doubts to rest, CBDT issued a detailed clarification.

Firstly, the exemption is available only to salaried taxpayers whose total income from salary and interest does not exceed Rs 5 lakh. The interest income should not exceed Rs 10,000. That is, the ceiling on total income is Rs 5 lakh (overall limit) and there is a sub-limit of Rs 10,000 on interest earned. Such interest income should be reported to the employer to be included in the TDS calculation.

An employee earning Rs 4.90 lakh and interest income of Rs 10,000 or Rs 4.98 lakh and Rs 2,000, respectively – any permutation or combination of salary and interest - is eligible for exemption within the overall limit. Even if the salary income exceeds Rs 5 lakh, but is brought under the limit due to tax deductions, it is covered under this scheme.

Say, one earns a net salary of Rs 6.35 lakh and invests Rs 1 lakh under Section 80C (PPF + ELSS), Rs 20,000 in infrastructure bonds (Section 80CCF) and pays Rs 15,000 as health insurance premium (Section 80D). Due to TDS (of Rs 1.35 lakh), the taxable salary income will be Rs 5 lakh and the person need not file returns.

If interest on housing loan is being considered for TDS, it would not be covered. At present, an employer can consider the interest paid on housing loan for TDS. This may reduce a salaried employee's total income to less than Rs 5 lakh as loss from housing property would be set off against salary income. Such a taxpayer is not exempted from filing returns because if he has a loss under the head 'income from house property', he will not be eligible for this exemption.

The exemption is available only if one's interest income comprises of interest earned on savings account. Interest from fixed deposits or recurring deposits will not qualify.

If extra TDS has been deducted resulting in a refund, then the returns need to be filed.

Say an employee has changed his job in the middle of a financial year resulting in salary earned from two employers, he/she will also not be covered here.

If an employee makes donations, it is stipulated that his/her employer while deducting TDS from his/her salary cannot allow deduction under Section 80G except for donations made to the Prime Minister's Relief Fund, Chief Minister's Relief Fund or Lieutenant Governor's Relief Fund. Otherwise, a taxpayer cannot avail this exemption For this purpose (claiming tax deduction for other donations), a return has to be filed.

Lastly, the notification clearly specifies that the individual has to report his permanent account number (PAN) to the employer. This is a precondition for falling within the ambit.

As of now, this notification was applicable to the current tax filing year. It is not clear whether this would be carried forward to next year.

In any case, we would always suggest filing tax return, irrespective of this exemption. A tax return is a key supporting document to ascertain eligibility for housing and other consumer loans. Even visa issuing authorities rely on a tax return to determine the applicant’s financial soundness. Therefore, whether this exemption is carried forward or not, taxpayers would do well to file returns.

The writer is Director, Wonderland Consultants